Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

Good morning, everybody, and thanks for joining us. Glad you could be with us. For those of you who don't know me, my name is Chris Goodwin. I'm the Customer Retention and Development Manager for Expeditors up in Boston. Coming to you from what is today at least a beautiful sunny day in New England. For those of you who familiar with New England, that will probably not be the case tomorrow. So we're going to enjoy it while it lasts. We have a great session for you today. So glad you could join us on this -- on the topic of Incoterms and demystifying everything therein. A few ground rules before we get going here, we will be recording this. So Alexis, if you could hit the recording button. So a few ground rules, we do want this to be interactive, since we are recording this. [Operator Instructions] We definitely want to make sure we answer any questions you have. We will absolutely get through all of them. So please, as we go through the material, [Operator Instructions]Following the session, there will be a quick survey that's being sent out. Once you submit that very resurvey, we will also get the material that we review today as well. Great. With that, we have a great session today. Allow me to introduce our speaker for the day. We have Lyle McGhin from our global product group here. He's going to take you through demystifying Incoterms. Again, I promised it to be a great session. Again, but please don't hesitate to put any questions or comments you may have. We will actually address anything. And with that, I will turn things over to Lyle.

Thank you, Chris. I appreciate that intro. Thank you for the team for putting this together and thank you all for attending. We really appreciate that. We want to make sure that this time is time for you that's well spent. We're going to take you through the latest version of incoterms published by the International Chamber of Commerce that happened in 2020. As we do that, we're going to describe the terms. We're going to go through a little bit about how they're used and what they mean. We're also going to do some comparison between the 2020 version and the previous version, which was the 2010 version, which was used. So I know that once the 2020 version got rolled out, life was starting to change. So we're still doing these seminars quite a bit to make sure that as things continue to normalize since that time that we get caught up on what this means. So we appreciate that. I believe Alexis and the team sent out some materials for those of you who registered ahead of time. I want to make sure that you know what those are. So the first bit of materials we have is this little document here. It's our Incoterms rules. This is the Expeditors branded version of this. We have this for you. We're going to go through that as we begin today and sort of start working through that. We also have a learner manual, which we provided to you. This is yours to take notes on, to use as we go through. Everything you're going to see on the slides, we're going to cover in that learner manual. And then upon completion of the survey, we've got an additional slide deck. So everything you see on here, we're going to actually provide to you so that you can use as a resource once the seminar is complete today. In addition to that, we want to continue to commit to be a resource to you. For Incoterms and all of your supply chain questions and needs, you can reach out to anyone in this group. We'll be happy to talk to you about what your needs are and what's happening with that. So a quick review of the agenda for what we're going to cover today. We're also going to do Q&A at the end. But as Chris mentioned, please drop some of those in the chat. He's going to be arranging them. As we go through some of the material, I'm going to try to preempt some of those questions and say, hey, we might get asked this with this. So we want this to be a really great interactive time for you. I know people are curious about this topic. I've been teaching on this topic now for, I think, over 10 years. It's just -- it's a neat thing that people need to kind of come in and understand. So we want to be a resource to you. We want to provide resources to help you do that. So here's our agenda today. We're going to cover an overview of international trade. We're going to talk about LSP services, a logistics service provider. And then we're going to define the Incoterms 2020. We're also going to review, as part of that discussion, where carriage risk and cost are transferred from the seller to the buyer. And then we'll wrap up today with a Q&A. But as a reminder, this is being recorded. So if you've got someone who had an urgent matter, they needed to take care of from the customer side or something like that, we've got a recording that it's going to be available to you post seminar. So that's also there. Here's our core objectives. So we're going to do 2 things or 3 things rather today. We're going to list the cost components applicable to an international shipment. Now I want to quantify that by saying, "Hey, I might already know what that is. Reason why we start basic with working through Incoterms, and we do that in Unit 1, is to really set the stage and sort of define some ground rules for how Incoterms are going to be interpreted once we lay those on top. I don't ever want to make an assumption of somebody coming into a seminar like this and immediately that I know what they know or we're all on the same page with the level of information. We've got a lot of different roles that are probably present today. I think it's really good. The earlier and the more upstream and supply chain you are, that you understand this information, the better. Really, Incoterms need to be something that has worked out before freight ever starts to move. And so if you've got somebody in procurement, buyers, sourcing, planning, all those roles that are more upstream, that's a great spot to know what Incoterms are and how they're applied within supply chain. But it's also good anywhere you are in the supply chain. If you're on the back end, if you're sort of wrapping things up in transactions, also great to know. But we just want to make sure that we first set the stage for what we need to know and what those things are, and then we build on top of that. We're also going to define the Incoterms rules 2010. There's 11 terms, which we're going to go through as we do this seminar today. And we'll tell you what those terms mean and how to apply them over a transaction so that you can understand what's going on. Our goal for this is not for you to leave this seminar with a perfect understanding of Incoterms. Our goal is for you to leave this so you can understand how they work, but also so that you could be more conversational around this. I've run into a lot of customers over the years who said, it's just one of those things that I touch it, and I'm not really sure what this means or how to arrange my business around it or even if it comes up in meetings, I really don't know how to speak educated in a way that adds confidence to me. We want you to be able to do that and to at least know where the good resources are, so you can continue to build on and refine your knowledge of this concept. And the last thing we're going to do is identify the point where carriage risk and costs are transferred from the seller to the buyer as part of these transactions. So we're going to do all that today. Here's our course map. This course has 2 units. I will go ahead and say -- qualify this by the first unit is pretty brief. That's the one where we sort of set the stage. And then Unit 2 is the one that's a little bit more lengthy that we're going to kind of get into the nuts and bolts of the Incoterm rules themselves. So let's just jump right in. Our first unit, Unit 1, this is the objective. Given an international shipment diagram and the parties involved, we're going to list the cost components applicable to the shipment. Again, basic stuff, but I want to at least touch it before we sort of progress into more detail about the Incoterms themselves. So this is a typical shipment flow diagram. Now given your role at your organization, you might be familiar with all of this or you might be familiar with one segment of this or one function or value within this. That's great. That's okay. We want to make sure that you understand from A to Z, what's happening, because we highlight these things because the ICC uses each one of these points as a point where carriage risk or cost can be transferred from one party to another, a seller or a buyer. On this diagram, we have, starting at the very left hand of the image, we've got the manufacturer, the seller or the shipper. This really represents where the freight or the transaction is beginning. Where is the transaction starting from a bill of lading perspective, from an organizational perspective. Where's my goods going? Whether you're a seller or a buyer, you need to know where it's beginning. And then you've got a pre-carriage move. And that pre-carriage move is simply, okay. So where, you've got where it starts. We how -- what's the when of where it starts. I mean, how is it going to move from this point to the next point? That's your pre-carriage. That could be any mode that we show here on screen, ocean, air, truck or rail. Typically though, in simpler transactions, it's probably a truck move, moving it to one of those other spots within the supply chain. We also see there is a forwarder component, which is the third move. I always tell people, this is my favorite part of the flow diagram because this is what Expeditors does. We help arrange the movement of the goods. It's like all the holidays roll around, and I see a lot of extended family, and there's conversations, it's always, hey what do you do for a living? Don't you drive a forklift or something. And I say, well, no, that's part of it. But honestly, what we do is we're more a travel agent for freight. We help arrange the movement from where it starts to where it finishes and everything in between. So that's a forwarder. So that's what we do. And that could be a part of your supply chain based on how you're moving the goods. Then we've got a customs component. So typically, when you are exporting from a location or a country, there is some sort of export compliance component that needs to be handled. Forwarders can help with that, but it's also a part of where it is because the ICC uses that to help define who is going to be responsible for that customs component, be it export or import or even both, depending on the Incoterms used. You might have a handling agent involved, which simply might be the consolidation or deconsolidation on the front of the backside or that agent that helps get it on to the ship or get it on to the aircraft or load it on to the rail, those charges associated with it, that's what that means. And right here at the middle, we've got our main carrier. This is what I typically describe as sort of wheels up or confirmed on board. It's left the port. It's now on its main journey to the backside of the shipment and making sure that things get completed on the import side later on. Once you move past this carrier component, we're going to simply work backwards from what we just built up. So we talked about a handling agent there. Well, there's a handling agent on the other side. It's got to get it off. So there's a handling agent and then there's also a broker that will probably help you with paperwork formalities, import costs, formalities as part of that, handling taxes and duties, basically making sure that those goods are imported and to be able to get into the country's commerce legally, that's what a broker will do on the other side. In terms of as part of that, on carriage to the final destination to the buyer, what we call a consignee in that way. So this is a typical shipment flow diagram from start to finish. I understand that this is a high level, that maybe there's some things in here that also need to be accounted for. That's fine. We can make account for those as we go through the Incoterms. But we just talk about this because we're going to lay Incoterms on top of this as we go through. And even you can see on the chart, we've got -- if you start over here at the front, you'll see it, it begins and we've got all those components sort of listed as we go through just in a different way there. So we will be referencing these as we kind of go along. Also good to point out that I wish I could tell you there were some freebies in here. There are not any freebies in here. This is -- there are charges associated with all of these. Sometimes you'll see on invoices or bills of lading, where charges can be rolled up and sort of consolidated into amounts. But rest assured, every person that's touching the freight and every touch point we have in that, there's usually a charge associated with it and those points are getting paid for their services as part of that. The reason why we point this out, you think, yes, that's probably really obvious is because cost is a component that the Incoterm rule itself addresses. So it's an important part of understanding Incoterms is who pays for what what's going on. So we talk about the cost component because we need to sort of call that out because we're going to reference it in Incoterms later on. The one thing I do want to point out on this slide is actually #8, which is -- spans the length and entirety of the shipment there. And that is cargo insurance. So cargo insurance, while it is specifically referenced within 2 of our Incoterms, I recommend that it'd be a part of every transaction, not just because we sell insurance because we do, we can connect you with policies that will help and assist. But really because it's necessary as part of supply chain. I would love to tell you that everything goes perfectly well all the time when you're moving freight. Unfortunately, it does not. A great example of this recently is what we're familiar with here in the U.S. on the -- particularly the Eastern Seaboard is what's happened in Baltimore over the last 2 months. Having that vessel that tragically hit the bridge and that vessel is stuck there. Well, there's freight on that vessel. And what happens to the buyers and the sellers who had freight on that vessel? Well, if they don't have cargo insurance, they're probably going to be sharing and taking part in some of what's going on from a liability standpoint on that vessel. So cargo insurance can help solve for some of those complexities. And we recommend that for -- you might have 1,000 shipments that go right, but it's that 1,001 shipment that's really going to cause you a lot of frustration and grief within your role. Cargo insurance can help mitigate that in your supply chain. So we talk about cargo insurance quite a bit, and we're going to reference it as we go through the seminar today. So when we talk about LSP, so what's LSP? That's just an acronym. When I joined this company, I've been here now 16 years. When I joined, I learned this really fast in Expeditors is the land of acronyms. We have -- we shorten everything to just letters. And this is no different Logistics service provider, that's really what LSP means. And this is what we do. So some of the things we can help with as a logistics service provider. I've had a lot of roles in this company, but sales hasn't been one of them. But this is where I get to pretend to be a sales guy for a few minutes just for fun. These are some of the things we can do. We can help with pickup and handling, export customs, freight forwarding. So if it's on the BCO side, we can help with that. Customs brokerage, insurance and then there's so many more things that we can help with that could be added to this, just speak to us. We're happy to help you play a part in supply chain, particularly in these days, since things are really turbulent all over the place, almost no matter what mode you select. Excuse me, I just want to make sure I go on mute before I have to clear my throat or cough. So the benefits of a preferred logistics provider are these. These are some of the benefits, we can highlight a lot more. Compliance confidence. I can attest over my years at the company that we put a lot of time and effort into making sure our employees understand what compliance is, why it's important, how we do it. All the components important to that to make sure that we handle our business to the letter and the spirit of the law, regardless of where we're doing business in the world. Compliance is important to us. We want to do that. We want to make sure that we're abiding by the letter of the law as we go through that and also the spirit of it as well. Insurance is something I talked about a few minutes ago. That's something we can help with as part of that. And we recommend that it be a part of your spend on your logistics is dedicated to that just to help keep you safe. And also, we do a lot of business with some of the larger clients who remain sort of self-insured up into a certain point. The risk tolerance is okay up into that point. But even after that, there's policies that can take place to help point -- assist with that. Also one point of contact. At Expeditors, we really still try to answer the phone and actually have conversations with people about their shipments to make sure that what we can do for you, you understand what's going on. We're collaborating to help move that freight. We want to be there when you need us. And this offers you one point of contact often for your freight moves. And then transportation options. All of our transportation products at Expeditors, air, ocean, the transcontinental side, the trucking pieces, all of those, we're constantly arranging for more options to meet where you are. So I work a lot on the ocean side. That's sort of my background at Expeditors. So we work to arrange contracts for both ocean, air does the same thing to make sure that we're expanding our reach globally. So if there's an area of the globe that you're focusing on from an organizational standpoint, hey, we want to expand into these markets. Let us know. We'd love to be able to explore that with you and tell you that we have options to help get you and you're freight where you need to go throughout the globe. Okay. So Unit 1 objectives. We looked at an international shipment diagram, and we talked about the cost components as applicable to that. So I told you at the front Unit 1 is going to be pretty brief. And that's really what it is. We want to set the stage. This is what we do, this is how supply chain works from a high level. And now we're going to focus in on Unit 2, which is given an Incoterm rule, identify the points where carriage risk and costs are transferred from the seller to the buyer. Now I want to address something that's on this slide. You see the phrase Incoterm rule. Well, the reason that's in there is because that's what each Incoterm itself is considered. It is a rule. So when we see Incoterm rules, it's just talking about the consolidated list of all those Incoterms. There's not rules that go along with it. It's just each one is considered a rule itself. So in our vernacular and short hand, we often just call them Incoterms. I'm using this term or this term. You can also hear them classified as trade terms as part of that, this is what we're discussing. So as we go through today, we're going to actually talk about each rule itself. Before we do that, I'm going to set the stage on why Incoterms exists, how they started, what they're used for, this kind of thing. Before we go any further though, I do want to highlight this book to you. If you're seeing me hold it up on the screen, it is the Incoterms 2020 Manual. And this is the published and copyrighted version by the ICC itself. This is the book. I recommend you have in your organization at least one copy of. It is necessary that you do this. I encourage people to have this and look at it because this is your source, your final source of information about Incoterms themselves. I was sharing with Chris and Alexis before the call, how -- when I started in this industry, somebody said, "Hey, you need to learn Incoterms. So I did what everybody does, right, when somebody says something like that, I Googled it. And that was probably a mistake. I started wrong from the start. There are a lot of great and wonderful things on the Google, but trying to figure out Incoterms, it's probably not the best place to start. Anything, everything, everybody has an opinion can publish it on the Internet and a lot of those opinions, particularly around Incoterms, end up being incorrect. So I recommend you have this book. It is 120 pages published by the ICC. No, I'm not getting any kind of remuneration from the ICC for recommending it. It's just a good source. It is 193 pages of some of the least exciting reading you'll ever do. I often call this book, ambient in book form. If you're having a tough night, trying to go to sleep. You're like me, you have small children. You need to bring the mood down in the house. It's getting a little too live. Hey, kids, let's talk about FOB is a great thing you can do in the house to sort of bring some peace and calm. All that aside, the information in it is excellent. You can order it from the ICC or from Amazon like I did. They're going to hurt you for it. It's like $60. That hurts my feelings because I'm kind of cheap. But regardless, get a copy of it. Use that as your source and be careful about what information you consume around Incoterms that doesn't come from an ICC source, including me. So check what we say. Get this and check what we say on this, and I think you'll be in a good spot once you have that there. As we're moving forward, so here's a key message that we want to try to understand as we go into this content and this material, is that the specific Incoterms rules stipulated in a sales contract can change the price of the goods. What does that mean? Well, we'll explain it this way. If I am putting together sales documents and I am selling my goods and I choose to sell on Ex Works, then all I really have on my sales documents is the cost of the goods. However, if I choose to sell on CFR cost and freight, then what I have on my sales documents is basically the cost of the goods and the transport because as a seller, I have now agreed on those responsibilities because I chose CFR. Here's another example of this in action but a different -- explained a different way. Sometimes when I did these things live, pre-COVID, I would ask this question and usually get somebody to tell me what they did. But if you bought a car from a car dealership at any point in your time, maybe just recently, maybe it's some time ago, but you understand how that process works, right? You can go on to the car lot, you find somebody you say, "Hey, this is a car that I would like. And they can show you a lot of different models and varieties. But they might start with a base model. Well, what is the base model of a new automobile? That is the -- that's where it starts, right? That's how it comes off of the line. That is the lowest common version of that automobile. It's what they call base model. Well, base model has a price. And that price is what they say it is. But if you're like me and probably many other people on the call, you go on to the dealership lot and you think, well, okay, that's base price. But I would really like the interior to be like this and this option. I want the sound system to be like this. I want computer component are going to remind me of things that I need to do. They're going to take me where I need to go. Remind me of my anniversary, my grocery list. I want this particular wheel type. So by the time you get to the end of your want list, what's happened to the base price of that car? It's gone up because things change, the scenario changed. That's a similar example of what we have with Incoterms themselves. So if you choose to sell on Ex Works as a seller, you're choosing the least base model Incoterms effectively, that really has the least amount of obligation for the seller. So your sales documents, basically, they're going to have the cost of the goods listed on that. But if I choose the CFR, I'm choosing to do more and have more obligation within the shipment. Therefore, what I sell on is probably going to be changed, given the responsibility that I have in the supply chain. So we say this as a key message to remind our listeners that choosing an Incoterm is more than just, hey, somebody needed this on a document, and I got to put something on here. So we're going to select this one. It is having an organizational conversation about what you are willing to agree to within a transaction. The conversation internally can be -- hey, are we -- do we have the kind of relationships to handle transportation? Do we have customs formality relationships in place where we can actually arrange for that because that's what we're agreeing to on the Incoterm? Those are the kind of conversations that need to take place well in advance of anything ever actually shipping or leaving a dock or getting onto a truck or a boat or a railcar. Those conversations need to happen at the point of planning and sales and hey, what are we agreeing to do by this Incoterm? And do we have the capacity to complete what we agreed to. And those conversations can change which Incoterm you're willing to abide by on those shipments. And it even makes the conversation more important when you add the risk element in as an organization. What is our risk tolerance? Do we have policies in place that are going to help mitigate that if something goes wrong and in a lot of cases, when something goes wrong, depending on your volume, you could have those 1,000 shipments to go right and the 1,001, everything just fell apart. Well, we don't want that, but we do want to be protected when that happens. So risk should be an absolutely important part of these conversations as we progress. So just keep that in mind that when you're choosing an Incoterm, you're also choosing what you are going to be responsible for in that transaction. So Incoterms 2020. The Inco, I-N-C-O part of terms stands for International Commercial Terms. They are 11 terms published and copyrighted by the ICC. And the most recent revision we have is 2020. So currently, the ICC is on what we call a 10-year revision cycle, meaning they come back to the set of Incoterms and make changes, revisions. They remove some things sometimes, they just alter it and make sure that it is up to date once a decade. One question I get asked from time to time is, hey, do you have any indication that the ICC is going to start doing this more frequently? No, not really. If things begin to change and we really see some dramatic changes within supply chain from a technological standpoint or a compliance standpoint, I imagine they would respond with some addendums to their current set, but really they've stuck to 10-year revision cycle. If I'm not mistaken, since about 1980. The third point here, and I skipped over on purpose because I want to stop with this term on this slide, is the main point of Incoterms is they are used to avoid misunderstanding of international trade terms. That's really the element of it. I come into a lot of these conversations, and the understanding that customers have of Incoterms is kind of varied. And if you're like me, when you started in this business, you probably looked to Incoterms and thought, I'm not sure what's going on here. They're kind of intimidating. I'm not sure how to understand these. I get that. If you can take away one thing about Incoterms, about what they are, it's probably this. They're just used to avoid misunderstanding of international trade terms. So the ICC was created in 1919, a little over 100 years ago, to help foster international trade. It sort of acts like your own hometown Chamber of Commerce. They're trying to encourage business, they're trying to encourage trade. They're bringing in business and jobs, et cetera, to their location. The ICC is a collaborative group that does that across the globe. They are trying to encourage international trade. It is a private organization. It is not governed or monitored by any one local government, though they are based in Paris. That is where the organization is based. And they are -- the first set of Incoterms, I think, came out in 1936, what they called at that time was trade terms. But they have been revising those ever since. And you can see those on documents. If you've been in supply chain, you've seen an Incoterm used on documents itself. Now one thing I will say about Incoterms is to understand what they are so that you can have good conversations about how they're used within your organization. It's not an uncommon reply from people that I speak with about this topic to say, we really don't touch these a whole lot. And really, what that tells me is, and I've confirmed this with some, that somebody put the Incoterm in SAP like 15 years ago, and that's just what prints on the documents. So we don't touch it because if you touch it, that means it's now yours. And if you rattle that cage, then you can assume responsibility for that change going forward and people kind of leave it alone. I get that. But really, I want you to have an understanding of Incoterms, so that you cannot be afraid to have those conversations internally to say, "Hey, we've been using this Incoterm for years, but is this really the right one for our business? Are we assuming more risk than we're willing to by using this term? Are we missing out on leveraging someone else's relationship as part of this? Whatever that is, I want you to be able to have those conversations as we go through. Here are some things to keep in mind about Incoterms themselves is that Incoterms are limited in scope and not all inclusive. There's just 11 of them. When I was -- many, many years ago, I was doing this seminar for -- I'm based in our Atlanta branch, so that's where I am. But I was doing the seminar for a vendor that is around Hartsfield-Jackson Atlanta Airport. It was halfway through and the guy raises his hand he said, "Wait these aren't Incoterms, what you're showing me isn't an Incoterm. But I have a customer that keeps telling me, I'm using the wrong Incoterms and that the terms are not letters, they're numbers, they're 10-digit number, there's 2 dots in the middle and it comes in a book this thick. So well, I think I know what you're talking about. I think your vendor or customers referencing the harmonized tariff schedule code number, which is a government assigned number to pretty much everything that we can think of to trade and have in commerce. And that's what your customer is referencing. And it is a 10-digit number. And if you've seen a physical copy of that, it is that thick. But I said, rest assured, they're referencing a classification number, but you are looking at Incoterms because there's only 11 of them. So all of the given scenarios that you might have in supply chain, if there were to be an Incoterm developed by the ICC for every one scenario that could think of, it would probably be in a book that thick. But there's not. There's just 11 of them. So what am I supposed to do if I can't find an Incoterm that perfectly matches what I'm trying to accomplish in supply chain? Rest assured, ICC has thought of this. Point two, when it is not clear, sellers and buyers should state who is responsible in the sales contract. So the idea from the ICC is that you examine the Incoterm rules themselves, find the one that is closest to what you're trying to accomplish. And then in your paperwork, in your contract and your sales documents and your shippers letter instruction, whatever documents you're trading between the seller and the buyer, you need to state who is responsible for things that aren't mentioned by the ICC or we want to choose FCA, but we also want to do this as part of it, which isn't covered on FCA, but we're making a note of it. Keep in mind, back to the previous slide. The point is that you're trying to avoid misunderstanding of international trade terms. That's what we're trying to do. I would often ask a question of our attendees. If you could know another language right now in addition to the language or language as you currently know, what would it be? And a lot of the responses I would get were usually, languages that had to do with where their buyers were located or where their sellers were located. Some would say, our headquarters is in Germany, and we do a lot of business. I would love to know German so that we can do that. And their response always told me they're trying to avoid misunderstanding. They want to understand the language. Incoterms is a shipping language that if you learn it, you can understand what is being requested, what is being agreed to and you can understand it. So if it's not clear, choose to make it clear within your documents so that everybody in the transaction can be on the same page and no, okay, you're going to do this, you're going to do this and the freight is going to move. It's -- usually, you end up in trouble when, well, I thought you were going to do this, and you thought I was going to do this, and the freight is just sitting. That's what you want to try to avoid or the freight's been it's been up for fines or something like that because there's compliance issues because no one was handling the information correctly. Just keep that in mind. And lastly, buyers and sellers should be as specific as possible when naming locations. I want to put a pin in this one, and we'll come back to it once we get down the line a bit, but I'll reference this one again and explain a little bit more what it means once we get into the Incoterms rule themselves. Something that's actually not listed on this screen, but I'd like to mention anyway, is the ICC is a private organization. Incoterms themselves are not law. They are an agreed upon set of standards for the transaction that both parties agree to. So if you use the wrong Incoterm, are Incoterms police going to come in and seize your freight and take you to Incoterms jail? No. That's not going to happen. But we want to make sure we understand what those are so that we can come to an agreement of what's being handled in that transaction. Also, it's important to note that the Incoterm rule itself have been recognized as a binding agreement through international courts that have litigated issues within supply chain. That's just -- it's been recognized in that way, though Incoterms themselves are not law. It's important to use the right one for the purpose of alleviating misunderstanding within your transaction, make sure everything goes okay. But as everybody on this call from Expeditors can attest, we've seen incorrect usage of Incoterms quite a bit. It usually takes us a little bit of time to try to really figure out what's going on. So the incorrect usage of Incoterms, while maybe not legally in trouble, it can introduce misunderstanding within the supply chain, which you want to try to avoid. What are Incoterms not? Incoterms are not terms of payment. They do not speak about when or how long it takes to receive payment. So it's not Incoterms, Ex Works and that means we're going to wire you the money in 15 days or CFR, 30 days, we'll cut you a check or whatever that is, doesn't talk about payment terms at all. That should be listed within your agreement with the customer sales contract, shippers [indiscernible] instruction and this kind of thing. They're also not a contract of sale. So that is what I mentioned just now was just your sales contract. The Incoterm themselves governs carriage, risk and cost of the transaction. Those are the 3 things that it talks about. They're also not a contract of carriage. If you see a bill of lading for a move, that is traditionally what we look at as contracted carriage. And on those documents, if you turn them over from the specifics of the shipment, you'll probably see a lot of mice type legalese, which outlines your terms of that contracted carriage. So Incoterms doesn't do that. Those terms are usually different, in some cases, even by provider. So there would be no way for Incoterms to actually do that itself. One thing that's important to mention as part of the seminar is that Incoterms do not define title transfer. The Incoterms themselves don't define ownership of the cargo. Now a lot of people think, well, you know what, I -- we did COB and -- sorry, FOB, free on board. And once that thing left, I don't own it anymore. I'm washing my hands of it. Well, you need to define the terms of ownership between your 2 parties through the documents that you have in that transaction. Now that terms of ownership transfer can reference an Incoterm, I've seen that before, where they've said, okay, we're going to reference -- once the terms of the Incoterm are complete, then we will recognized transfer of ownership at this point at that point. But the terms itself within the Incoterms book, you're not going to find any terms as far as you own this product here versus here, it's not in there. Incoterms doesn't do that and the ICC doesn't speak about ownership of the goods at all. Here is what the Incoterms defined. So we've talked about what they are, what they don't do. Well, what is it they do. They define in detail these 3 objects: transportation obligations. Who contracts the carriage? Who in the transaction is responsible for arranging the movement? Who calls the trucker? Who works with the forwarder? Who works with the airline to make sure that it gets on the right flight? Who owns that? The second thing is the cost, who pays for all those things. You remember the document we looked at earlier that defined all the costs. The reason why we look at that document is because of this. Who is responsible for paying for those different things within the transaction? And then the third thing it addresses is risk. Who is responsible for the transaction if something goes wrong? So if it's stuck on a vessel, if the goods are waiting on the tarmac too long during the rainy season in Singapore and the goods get damaged and we can't use them. That's a risk event. Who is responsible for that? In my experience talking with customers about this topic, customers usually have a great understanding of numbers 1 and 2, where transportation obligation costs, things -- my job is similar. I have things in my job that are just autopilot. They just boom, boom, boom, one after the other thing. And those things, I just can't rely on it, right? So you might have relationships. You might have relationships with vendors where you've been swapping freight and doing business with each other for years. That's great. And everybody understands the deal between transportation obligation and costs. You send the freight, I pay you for the freight. You send the freight, I pay you for the freight, and it just goes on and on. But when something happens and there's a risk event, that's when the whole thing stops and everybody takes a step back. And everybody starts looking very closely at the documents and what did we agree to. And sometimes lawyers and legal representation with the organization get involved, and then that's when you're really looking at, okay, what did we agree to versus what we didn't? And that's why I want you to make sure that maybe that Incoterm that's been printing on your docs for the last 15 years is still cool. It's still good. That's great. If you're not sure, make a note to go back to your organization after the seminar and just start sort of digging in and saying, okay, are we really still okay with FCA as part of this or have our needs changed over the years, and we really need to look at this again. You can do that at any point, and I recommend you do because risk is a part of that. Asking the question through those introspective times at the organization, you can have a meeting. It's say, we've been using this level of risk tolerance for years. Are we still okay with that? Because things happen in the supply chain, unfortunately, and I want you to be covered with that. I don't want a risk event to happen and then everybody to be unclear on why you agreed to an Incoterm previously, that's going to expose you when you didn't want to be exposed in that way. Just take that as a note off-line so that you can go back to your organization and try to determine that. So Incoterms themselves, now this is the part of the seminar where we actually transition into talking about each rule as its own thing. The Incoterms rules are divided into 2 groups, and I'm going to look at my branded chart here, that's hard to do when you're on video. But there's a top section that's green, and we've got a bottom section that's kind of grayish and -- this is just not working well. So I'm going to abandon it. But the top is sort of green and the bottom is grayish. The top 7 are what we call rules from multi-mode or any or any mode. So you can have a combination of modes for those transactions. And those rules will apply to any mode that you're doing, truck, rail, ocean, air, any of those. And if you have combinations of those modes, the first group will suffice. The second group that we're going to discuss today are what we call rules for sea and inland waterway only. Now those are rules that are dedicated for water transportation. What we mean by that is ocean moves or could also be looked at by inland waterway transport, barge moves up and down rivers, a little less applicable here on the United States side, but this inland waterway transport. If you go to Europe, I've been to Rotterdam and London and seen barges loaded with ocean freight that are just moving up in between ports because they still use the river systems quite a bit. So the bottom 4 water moves, the top 7 rules for any motor multimodal, you can combine moves and have those addressed there. So we're going to start going through those in a moment. So let's talk about that first group. The first thing I want to introduce to you is how do you look at these as a whole, because then we're going to dive into each one and start breaking it down as we go through that. But how I look at these as a whole? To the left of this image, you have the Incoterm itself. So you see Ex Works, free carriage, Carriage Paid To. Each of these are represented by a 3-letter code. EXW, FCA, CPT and so on. After the 3-letter code, you have parentheses with some language in that parenthesis. So what does the parenthesis mean? Several slides ago, we mentioned that it was advisable for buyers and sellers to be as specific as possible when naming locations. Okay. Why is that important? Because in that transaction, the ICC has no idea of the locations of where that transaction is going to shift or the transportation obligations are going to shift, the risk, the cost, where is that? In the parentheses is where you need to do that. Let me give you an example of how this plays out and why that's important and maybe to help -- will help my statement make a little more sense. So let's take EXW. You'll see it at the top of your screen. It says EXW, parentheses,naming place of delivery, Incoterms 2020. This formatting is actually the correct format of how Incoterms should look on commercial documents. Now in my experience as a forwarder, and I'm sure Chris and Alexis and Jessica can attest to this, we don't -- we rarely see it used this way. A lot of times, we'll just get to 3 letters. If we're lucky, we'll get the 3 letters and the parentheses with a location, but never fully with Incoterms 2020. So why do we have -- I'll start at the end. Why do we have the Incoterms 2020 as part of this? Well, there's an interesting thing about Incoterms is that you can use, as part of your transaction, any version of Incoterms from the ICC that exists from now all the way back to the 1936 version. You can use those. If you're -- if you have an Incoterm that was -- you liked from the 2000 set and really works for your business, it's okay for you to use that as long as all the parties in the transaction understand which version you're using, which is why you put in the Incoterms and then the year, which signifies which version you're using. So if you're Friday night is free and you want to open a bottle of wine and see what the 1936 version said, go for it. Maybe there's one in there that really is a home run for your organization and you love it, you want to make it a part of it. That's cool. You can do that as long as everybody in the transaction understands this is the version that we're using. Now if we don't see that Incoterms 2020, particularly on the freight side, that's okay. We don't see it very often at all. And our understanding is we generally default to if you don't tell us what version, we're assuming the most current version of Incoterms from our level of understanding, which helps us know who to communicate to within the transaction, be it buyer or seller. So quick note, you can use any version, just as long as you make sure everybody in the transaction knows which one. Okay. Backing up further. In the parentheses, naming place of delivery. So what does that mean? Why do I need to be specific about naming a location? Well, when you're specific about naming a location, you're removing ambiguity in the shipment about where the transfer is going to happen. But let me give you a scenario. I told you I was based in Atlanta. Let's say I'm a seller and I'm selling children's coloring books, let's pull a random thing out here. I choose to sell on Ex Works. And I say Ex Works Atlanta, ATL or spelled out Atlanta in my processes. Okay, good. Now we know what city. Well, if you've been to Atlanta or I apologize in advance, driven through Atlanta. First, I'm sorry, because the traffic is abysmal, but you know that Atlanta is a very big place. So let's say, for instance, I'm selling on Ex Works. I say Ex Works ATL. As a seller, I'm really responsible for having the goods packaged and ready under Ex Works. The goods are picked up at my facility the goods are now on a truck. They hit the highway. Within downtown, let's say there's an issue, the truck breaks down. The goods are damaged. It's in an accident. I'm sorry that happened. Hopefully, everyone is okay, but the goods are damaged. Well, now -- if I have to call the buyer and say, guys, this load of coloring books, I'm sorry, it's damaged, it's going to be late. We're going to have to replace some of them because of an accident. When everybody goes back during that risk event to look at, okay, where did this happen? As a seller, I put Atlanta on there. Well, was it still in Atlanta? Was it outside of Atlanta, where in Atlanta was it? What's going -- where -- now we've got misunderstanding and ambiguity in the shipment about where that transfer actually is supposed to take place. Let me spin that scenario to the other side, same thing. I'm selling my goods, Ex Works. But instead of just saying Atlanta, I say, I could even say Ex Works sellers facility. Or I could make even -- the address could be a part of it. Ex Works, Seller's facility, 300 Tradeport Drive, Atlanta, Georgia 30354, Dock door #4. Awesome. Now that's very specific. So if the same scenario happens and now there's a risk event, I can go back to my documents and say, "All right, where the coloring books here? Or were they not at Dock door #4? Did that transfer happen at Dock door #4? Yes. Okay. Now the risk has been transferred over to the buyer. And this is something that's now off my responsibility list and on to the other party. That's why they say be as specific as possible in naming locations because the parentheses is where you name the location. Let me take this a little further. Here on the image you have, these 2 at the top, you've got exports and FCA. Both of those say a named place of delivery. Okay. I know what that word means, right? I'm in logistics, I'm in supply chain. I'm also a reasonable human being that has used the word delivery for ages. So I know the definition of that work. Well, the ICC doesn't define the word delivery like we understand the word delivery. And it's important that we understand this as a distinction when looking specifically at these 2 terms. So what does delivery mean for these 2 terms, it means that it has been transferred from the seller to the buyer -- sorry, transferred to a carrier, rather I'm used to saying transferred from seller to buyer. When you use the word delivery here, it means that a carrier has taken possession or a carrier has taken delivery. So the example we just used briefly where I was selling my goods on Ex Works out of Atlanta, I could name that place of delivery, Dock door #4 because that is where the carrier, the first carrier, is going to take delivery of that cargo. Now destination, which is the word you see for the other items here for Carriage Paid To down to DDP, named place of destination. That's what we think about as getting toward the termination point of that shipment and the consignee where they're located, if it's delivering a warehouse or a showroom or whatever that happens to be. Storefront, that's what we talk about when we're talking about naming the place of destination. So just as a recap on the words delivery and destination. Delivery means carrier. Delivery means the carrier has taken delivery. Destination, that's more toward the termination of the ship in itself. Where is this going to end? And each one of these has the ability to sell out where that is. So you can come to an agreement. If you're the seller and you're working with the buyer, you guys got to agree where is the place of delivery going to be for this? If we chose Ex Works, great. It's my dock, here's the thing. Cool, let's do business together. If it's on destination, you can define where that is? Is it the storefront? Is it a warehouse? Is there a terminal? Where is that going to, and then you can define that as part of the shipment. So once again, the 3-letter code, location in the middle in the parentheses. And if you're using a different version than 2020, it's probably good to make a note of that as you go through. Now I'm going to pause just really quickly before we actually get in and turn it back over to Chris, while I have a quick sip of coffee.

Great. Thanks, Lyle. Well, I just wanted to make a quick announcement. We are seeing some questions that are put in the chat, and we're certainly glad to have the questions. [Operator Instructions] Thanks.

Awesome. Thank you, Chris. I appreciate that. I was taking a quick drink of coffee, I probably should have recommended that right at the beginning of the seminar. I've been teaching on Incoterms for a lot of time, and I have really tried many different ways to make this as interesting and jazzy as possible, but it's still Incoterm. So you're probably going to need coffee when you're going through that. So I understand if you need to take up -- take a second, step away, refresh your cup and then come back. It's totally cool with me. And yes, we are excited about your questions. We are going to have time for those at the end. So if you'll drop those in the appropriate location that Chris mentioned, we'll make sure that we get to you. And if we don't have time during the Q&A today, which I don't see as a problem, we'll make sure we follow up with you post seminar to get you at least an answer or a connection point where we can talk about that. Okay. Now is the point of the seminar where we're actually going to talk about each rule itself and then we're going to do some wrap up at the back end. So you've been hanging with us now for close to an hour. That's awesome. Thank you. We are entering the backside of the seminar. So no sweat. We're going to get through it together and work through this as we have time. So let's talk about Ex Works. If you're using your chart or have that referenced, it is right here at the top, Ex Works. It is where things begin. From a seller perspective, Ex Works is the least amount of obligation. So if in your transaction, you are the seller, you don't have to do much at all as part of this transaction under Incoterms. Here, we have the seller is really responsible for having the goods packaged and ready for loading. Whatever that means, for your goods. If it's shrink-wrapped and really packaged ready, if it's palletized, if it's banded, whatever that means for your transaction. Having the goods packaged and ready for loading is the obligation of the seller. The buyer is responsible for contracting all the transport, export customs and is even responsible for loading of the goods. I'm going to come back to that one in a second, because that's a little bit of a curve ball as we understand Ex Works. The risk is transferred at the named place of delivery. So the example we just went through in the previous slide, have that in mind as we're doing it here. What is that named place of delivery? And again, what does delivery mean? It means that a carrier has taken delivery. So where is it getting picked up? That's probably your named place of delivery. Now we talked about the seller being responsible for the least amount of obligation on behalf of Ex Works, the buyer has the most. The buyer not only has the most, but technically under the ICC, they're responsible for loading the freight as well. Now if you -- I doubt anyone on this call today has a warehouse or organization that would be okay from a liability standpoint, letting someone else into your warehouse onto a forklift to load, a third party to load goods onto a third-party contractor that they have. I don't know if anybody's internal insurance policies are going to be okay with that. So ICC understands that. In some countries, it's like that, and that's okay. Here, probably not. Just understand that if you're agreeing to an Incoterm, you need to understand the specifics of the Incoterm that you're agreeing to so that you don't put yourself in a bind. Here's an example. I had an example of a brand-new importer here in the U.S. who is really excited to do business. One of the first shipments, they had sourced some of those goods that they were importing got a great deal. Decided, "Hey, Ex Works is going to be okay. That's what the seller wanted to sell on. I'm agreeing to that. But because they had a U.S.-centric understanding of how freight moved and loading, unloading, trucking, warehousing, they just assumed that the seller would load it because, well, that's what happens here. So they arrange the ship in the transaction. Nobody ever mentioned it. The truck goes out to pick up the freight. They roll up the dock door. Everything is loose freight because it's Asia and it's all floor loaded to maximize space because you want to maximize every molecule in that shipping container you can. And the [indiscernible] and the truckers left. They are going, I can't load these boxes on by myself, I got to get out of here in 20 minutes. And so then you have a problem where now that they have to arrange and go to higher [indiscernible] to load it, it's floor loaded, so it's going to take a while. The trucker is now late. They've probably left. You're going to have to rearrange those. You're going to have charges associated with that. You're probably going to miss your port cut. It's snowballs. All because, hey, I assume that we're going to load it on my behalf. Don't make assumptions with Incoterms, they are going to end up hurting you later on. The whole point of Incoterms is that everybody can be on the same page. So if you have an understanding in your location of, hey, this how we normally do it. It's not to the letter of what this is, but it's how it normally happens. Just call it out until everyone begins to get familiar with that relationship and you can go from there. So just because the -- you sold on Ex Works, does not mean you want the buyer loading it. So the ICC says, okay, we understand that. We understand it's not customary in every location for this to happen. So if you are at a location where the seller wants to load it, the ICC says in that circumstance, the buyer should then be responsible for both the cost and the risk of loading if the seller is going to load it. It's sort of a meat in the middle. So if the seller says, I can't let you in, but I will load it for you, then the ICC says the buyer should be responsible for the cost and the risk of loading the cargo on their behalf. I would go one further to say that I don't even think most U.S.-centric sellers would honor even that. I think they're just going to load it and it's just going to be part of the deal where you probably would not build back loading -- and even if there were an unlikely risk event during that, that, that would be a problem. So -- and that's okay, too, just as long as everything is made very clear within your documents. Now something else to point out on Ex Works that I think is worth mentioning, is lease obligation as a seller, who's responsible for export customs? The buyer. I would urge you to exercise caution around this, particularly our U.S. friends who are selling from the U.S. and it's going somewhere else. In the United States, if you're exporting, you are subject to export declarations per U.S. customs, and those declarations are basically it's a document that says -- and it's all digital now, but it used to be a document. But it basically says, here's all the specifics, here's where it's going, who's getting it, what it is, what the classification number is, how much it's worth. All of the nuts and bolts being counting sort of information that the government uses and there's also some homeland security stuff in there, too, because we want to make sure we're not sending goods to bad actors overseas. All that has to be filed with U.S. customs. And it needs to be done correctly, classified correctly or are you going to be in trouble with U.S. customs. The thing about turning that responsibility over to a buyer who may not be located in the U.S. or have understanding of export -- U.S. export customs law, you need to carefully review that because if they file a customs declaration for the goods that they're buying, and they do that incorrectly, U.S. Customs is not going to go after the buyer in some other country, they're going to come after the seller here in the United States because that's where the goods originated and you're party to that transaction. So if you're doing Ex Works and selling Ex Works and your also transitioning U.S. Customs requirements over to a -- could be even be a foreign party, review that. Make sure that, that party has appropriate controls in place, has appropriate parties that do this that understand how the process works and can do it compliantly. I really want to make sure that you're covered. We talk about risk but also from a compliance standpoint, too. I can hear my dad's voice in my head, if you want something done right, do it yourself, right? If that's a concern, and you really can't get to a good place where you're okay with this, then FCA is probably the next thing you need to do. So under FCA, if you look at the chart here under FCA, it sort of increases the seller obligation. And that's how we're looking at this chart. Under Ex Works, you got the lease amount, sellers over here, buyers over here. FCA, I'm doing a little bit more than Ex Works was before. So under FCA or Free Carrier, the seller is responsible for packaging, pre-carriage, loading and also export customs. So all those important things that happen for that -- for those goods in that transaction, that's the seller that's responsible for those on the export side. The buyer is responsible for unloading the goods at the next point of transport, arranging the transport from thereon from the seller's point of delivery. And again, delivery means the carrier has taken possession. So sometimes we see FCA used from the seller's premises just like Ex Work's. If they use Ex Work's seller premises, you can also do FCA seller premises and put the address there. You would just be responsible as a seller for doing the loading and the export customs and even arranging the pre-carriage even though it's going to leave from there. But you can also highlight the place of loading and the place of delivery as where it's going to get unloaded as part of that. So that could be part of that as well. The risk, however, is transferred when it's considered delivered and not unloaded. So in my mind, when I see that, it is considered delivered. What does that mean? The carrier has taken possession of that cargo. I see the truck door kind of closing and it pulling away, okay, good. Risk is being transferred when it's considered delivered and not unloaded. And from an export compliance standpoint, again, this is if you're unsure about a buyer's ability to navigate export customs declarations, be it in the United States or really any other country, FCA is probably a good option if you want to retain that and still might have to worry about the main transportation of the cargo itself, something to keep in mind as we go through that. Ex Works from a seller perspective, it's the easy button. It's -- you just have the least amount of obligation. And as we continue to move through this list, we're going to increase that obligation as we go. So we've talked about Ex Works. We've talked about FCA. Just a quick reminder about the Incoterms book here. If I'm holding it up, you see it's got both the sides that are blue and orange, it's talking about seller obligation on one page and buyer obligation on the other, and this really goes into a lot more detail than just the condensed 3 points that we're giving you today. So keep that in mind as we move through. All right. CPT, Carriage Paid To. It's our third Incoterm. And again, as we move through the process, we're increasing the amount of seller responsibility, CPT is no different. We're going to do that here too. One thing that is different about CPT is the transfer of risk happens much earlier than the transfer of responsibility of the other objects within the transportation, the transportation and the cost. I'll explain that as we go through. So under CPT, the seller is responsible for export customs, for contracting the transportation to a named destination. Now we've transferred from delivery to destination on the location. Okay, cool. Now we're getting close to actual consignee or final buyer delivery as part of that, but you have to name where that is. So it's a pretty big leap between FCA and CPT from a seller perspective. Seller does the export customs, gets it to the port all the way to the destination airport, ocean port, rail terminal wherever that is, and has all that responsibility. The buyer is really responsible for unloading a destination and import customs, though import customs is not mentioned on this point. The risk of transfers, however, all the way back at the first carrier, which is a little unusual. But one thing the ICC likes to do as part of these transactions is to give variability within the Incoterms rules themself to allow flexibility to handle different types of transactions. Well, what would be a good example of why you would want risk to transfer at the first carrier rather than the rest. Let's say, for instance, that you've got 2 parties within this transaction. The seller in this case is a large multinational corporation. They've got a big presence, and they're selling to a smaller buyer somewhere else. Okay? That's routine, happens all the time. Within the supply chain itself, that large multinational probably has a lot of volume. And what comes along with that volume typically tends to be preferable or preferential price and service from some of those service providers that go along with that. So one of the things to remember is whatever you are consuming in your personal life, whether it's this coffee cup that I have or even my phone, all those things, when I purchase them, a small portion or percentage of that, there's freight built into that somewhere. So if we're on the same page of commercial items, we're probably in the best interest of keeping those -- the cost of those items down. If I'm working with a large multinational and buying off of that large corporation, I may want to be able to take advantage of some of the price and freight costs that they can get that I couldn't get. And maybe that even comes with better service. So we made a decision to do CPT where we can leverage the seller's presence in the market from a cost and a service standpoint. It gives the seller more control over the shipment. But as a give and take, the buyer absorbs the risk earlier within the shipment. So it's almost like if I was a big seller and I was selling to Alexis and I said, "Hey, Alexis, I can get really good rates and good service. But as part of that transaction, I'd like you to assume the risk earlier within the transaction, that would be an example of how this incoterm could work for that. So again, an example of ICC being flexible within their roles to try to match what's going on within the transaction in the marketplace. So just keep that in mind, buyer really physically is responsible for the unloading at destination, but from a risk standpoint, owns the majority of the risk on the shipment itself. And we've gone through an example of why that might be beneficial. Let's talk about CIP, Carriage and Insurance Paid To. So this is the same physical scenario, carriage risk and cost that we just talked about with CPT. No changes in that at all. The seller, same as CPT. The buyer, unloading destination plus the risk that transfers to the first carrier. All that stuff still applies. The difference between the 2 is you've got an insurance component. When we talked at the front of the seminar, there's 2 Incoterms themselves that specifically call out insurance. This is the first one. There's one term in each section that does that. CIP does it for the multimodal section. Now what does it mean to have insurance? So under CIP, the seller is responsible for contracting insurance on the buyer's behalf. There's a couple of points to talk about insurance here. Now this is where I usually say, okay, this is -- really there's enough insurance stuff around this for an entirely different seminar. So I'm going to give you a high-level understanding of that. But if you have questions after it, I would encourage you to talk to one of our Expeditors sales staff or account management staff about insurance so that you can go more into the details about this itself. I'll just give you the high points and then we can get into the details after the call. Insurance on the buyer's behalf is the seller's responsibility. So what does that mean if I'm the seller? It means I need to have a policy in place for the buyer that is in the currency of the contract. So whatever currency you've listed on your sales contract, if be that euro, U.S. dollar, whatever currency you're using, that's the currency that the policy needs to be in, It needs to account for 110% of the value of the goods. So it's got to cover the commercial value of those goods, plus 10% for overhead and the hassle of admin on the insurance side. 110% of the value of goods. It needs to cover, under CIP, clause A of the Institute Cargo Clauses. Hold on Lyle. What is Institute Cargo Clauses? I don't know what this means. The Institute Cargo Clauses is 5 governing clauses on cargo insurance, A, B, C, D and E. A, B, C, D, E. Yes, I got 5. I had to count it of my head first -- goes through those and each one of those levels defines a level of coverage. So just like you and I might buy car insurance. There's car insurance that is the base model car insurance, right? It's just get me legal. And then there's the insurance that's a lot of this is going to cover a lot of things, the amounts are high. You pay different levels for that and the cost that you pay is different. Same thing on the cargo insurance side. What it means by Clause A of the Institute Cargo Clauses is Clause A is the most extensive level of coverage on the insurance side. Some of those clauses will define it as all risk. You might have heard that term. It doesn't really mean all risk. What it means is it's the most level of coverage you can have for your cargo. Now this is important to note is that Clause A is actually a change from the 2010 set, the 2010 set represented Clause B,I think or it was Clause C. But the 2010 set had a lower level of coverage on it. So when they revised for the 2020 set, they increased that to Clause A, which is the most extensive level of coverage to account for air shipments that usually typically had higher commercial value than some of the ocean shipments. We see that a lot with air shipments that are time-sensitive, high value. You don't want them to linger in the supply chain too long for a lot of different reasons. So under CIP, that has to be Clause A of the Institute Cargo Clauses. So the most level of coverage you can have. And then the last point to point out here is that if the buyer is unhappy with the policy that has been secured or the level of coverage or something like that, it is the buyer's responsibility to supply additional insurance coverage to account to their level of comfortability. That's what's going on. Quick review of those. It's got to be in the currency of the sales contract. We have to be 110% of the value of the goods. It's got to be Clause A of the Institute Cargo Clauses, most level of coverage. And if the buyer is not comfortable with that, the buyer can supply additional coverage to meet their level of comfortability. And that's what's going on with that. So if there's additional questions about that, we'd be happy to take those offline and get you connected with an insurance professional that can go more into detail about what that covers versus what it doesn't. So this is your first one that's insurance. Okay. I'm keeping an eye on time. I want to make sure that I get to where we can have some good Q&A here in a little bit, but we're going to move into our D terms right now. So the last 3 terms of our multimodal set is DIP, DPU and DDP, what we call our D terms. So under DAP, Delivered At Place, if you're looking at your chart, it's got sort of the same level of transfer as CPT and CIP, but now your risk is back to normal where they're all transferring at the same spot. So under DAP, the seller is responsible for carriage to a named place or named destination. What does that mean? That means that you determine where is that place. Is it the ocean terminal? Is it the seller or buyers location? Is it a warehouse? What is that place, name it on when you're using DAP. The buyer is responsible for unloading and import customs at the name place. So they're going to unload it, plus take care of the import customs formalities so that those goods can be brought into that country's commerce and traded and all that be legal. The risk transfers at that name place, but not unloaded. So basically, the buyer is responsible for unloading and the risk from unloading to their facility. But the seller has that amount of obligation as to that point. So that is DAP delivered at place. And it is sort of -- in my estimation, it's sort of an opposite of FCA. That's what it looks like to me. So sellers get into the named place, buyer responsible for everything, unloading import customs and then the risk transfers at that named place. DPU is what we call Deliver at Place Unloaded. Now if you're keeping track of the changes between 2010 and 2020, this is the most significant change between these 2 versions. And by the way, as part of those materials we submitted to you when you registered for the call, you should have gotten what we call a white paper, which is a 3-page document that really clarifies and outlines these changes, and it includes some notes on DPU. So that should be a part of your materials that we can supply to you if you miss them as part of the registration period. Under DPU, the seller is responsible for arranging carriage to the named place, including the unloading. Hang your hat on that one. We'll come back to it. The buyer is responsible for the risk after unloading on carriage and customs. Little bit different than DAP in that way. And then the risk is transferred after it's unloaded at the named place. So one of the last times I did this seminar live February of 2020, just days before everything sort of locked down. I was in Knoxville. And I had a gentleman grab me after the call after the seminar and said, "This is really great. This fits my business perfectly. He said, my company, we build autonomous vehicles, and I wish I had time to ask him what that meant more because we think autonomous vehicles, we think, oh, the Teslas that drive themselves, this is a Tesla guy. But they made some sort of vehicle that was autonomous. It was self-directed, self-driving, that kind of stuff. And he said, we can't just send this somewhere and have somebody take possession of it because they don't know how it works. So when we ship something, we have to send someone who's going to unload it and set it up and make sure that they train somebody on how it works because the seller is actually responsible for the unloading in this scenario. So you might be thinking, okay, this is also good for break bulk goods, where maybe the goods are very specific and have to be unloaded in a certain way, that would also be a good use of DPU, which is really a transfer from DAT, Delivered At Terminal earlier on. Oh, no, it's not. It's a different one. But -- so that's a good example of what this -- where you might use this DPU, where the seller would be responsible for unloading the cargo. So just to understand, DPU, if you're the seller, you have to be responsible for the unloading of the cargo. And the buyer is going to take care of import customs. They're going to assume the risk after unloading and all the on-carriage, if there's any at all, there may or may not be depending on where you selected the place and the named place of delivery. So once again, DPU is the biggest change of the 2020 set, and they've clarified some language within that over the years, and that's probably the biggest one that we're talking about from a change perspective. DDP, Delivery Duty Paid. Now delivery duty paid, this is the last in term of the multimodals and then we're going to go into the ocean or the water rate terms in just a minute. But DDP is -- we talked about Ex Works being the least amount of obligation from the seller. DDP is the most. So as a seller, you are responsible for contracting carriage to a name place, not unloaded, inclusive though of customs and duty. The buyer is responsible for the cost and the risk of unloading and the risk transfers at the named place, whatever that name place happens to be. Probably a good understanding of this would be the buyers facility, some for warehouse with that. But let's talk about the sellers responsibility in this because we talked about it being the most. As a seller, you're responsible for nearly everything that's going on in the transaction. But something to point out is the customs and duty piece. I was delivering this in our Nashville branch some years ago. And I came upon this term, and I had someone in the front and say, "Oh, yes, we use this, it's no problem. We ship a lot of things. We export to Colombia, and they handle all the customs and duties, he kind of waved his hand, he said, "I got a Colombian connection that handles all that. And immediately in my head, I was thinking, please stop talking. I don't want to know any of your Colombian connection. I don't know what that means. I hope that your Colombian connection is above board and they understand how all this is working and all this stuff. Just to understand that if you are responsible for arranging the customs and the duties on the export side, you probably have a good example of that. But if you're doing it on the import side and you don't reside in that country, do you have the ability to do that compliantly in that country in which you are exporting into? That's the thing here. Just like there's a compliance concern on Ex Works of, do they know they're doing this right is do you know as the seller that the agent you've nominated to handle the import customs duties is also doing that correctly. You take that as a point to if you're used to doing DDP, is that a risk area that you want to assume? I hope that it is. If you import into -- and if you're using DDP, say, if you're selling into a location that has frequent import changes from a rule standpoint, one country that comes to mind is Brazil, that country's customs changes. We see that variability. Just make sure that they understand that you have an expert there that is doing things compliantly that can navigate those changes so that you don't end up with your freight being held or stopped or put at risk from a fines and a taxes standpoint as part of that transaction. There you go. Okay. Let's move on to Incoterms for waterway only, and this is our last 4 terms, and we're going to move through these and then wrap up, and then we'll open up the Q&A with Chris after that. So just a little bit longer as we have to go through this, and we'll turn you loose. The 4 terms we have. We're going to look at those the same way we looked at those on the multimodal set. You've got the term itself, free alongside ship, you've got the 3 letters, you've got the parentheses, where you're naming a location. And then if it's a different version, you could stamp that copyright year on the back end of the term itself. So let's talk about free alongside ship. Free Alongside Ship is exactly what it means. The seller is responsible for delivering to the ship side including export customs. This is very common in the break bulk world, in the world of project moves where maybe you're -- in my head, I see drilling equipment, and I see grain or bulk or commoditized type goods, where you're not going to tender a container at an ingate location, you're actually delivering at the ship side where it's going to get loaded onto that vessel. So that's a good example of that happening. The buyer is responsible for arranging the main carriage and they're responsible for loading the vessel, and the risk transfers when the goods are alongside the ship. Another great example of FAS in motion is -- I was delivering this seminar and the group that I was delivering it to, they made boats. And I had a lady raise her hand. She goes, is this like when we make the yachts that are too big to truck on land. So we sail them to the containership and they get put on the boat and then they go and get delivered? And I was a bit stunned because I had never heard of such a perfect example of FAS before. But yes, that's exactly what it is. This company made yachts. I don't know anything about yachts other than that they exist. I've never been on one. I'm not in a position to ever own one. But they're too big to truck anywhere on land or anywhere in the world. So when they build them at their ocean facility in Florida, and they want to get delivered to some wealthy person somewhere, they sail them alongside the cargo ship. They run straps under them crane it on top, send you down and then they go and they deliver it and the reverse process happens on the other side. That is a good example of FAS. They've delivered it alongside the ship. The buyer is responsible for loading the vessel. So everything that happens to get it on the vessel, that's the buyer responsibility, but the risk for it happened when it was considered alongside the ship. Probably don't see this a ton with containerized freight that we know of that we see when we're commuting on the highway. Less of a usage there, but still applicable, nonetheless. So if you've got break bulk stuff, understand what's going on there. Before I move on to FOB, something to note here is the seller is responsible for delivering to the ships side. But who is responsible for selecting where the ship is? The buyer. So the buyer is responsible for arranging the main carriage. Keep these things in mind well upstream when you are negotiating deals for your transaction as a seller. If the buyer is responsible for arranging the main carriage, you got to know where that main carriage is because you have to get it to the ship. So I don't want you making an assumption of, okay, I'm located in Atlanta. The 2 most common ports I sail out of are Savannah and Charleston. So I know my costs out of Savannah and Charleston. Let's say that they're roughly equivalent because those locations are pretty similar and close. So I make an assumption, probably going to go out of Savannah and Charlotte. Here's my cost to get it there. I negotiate that as part of my deal. When the goods are ready to ship, the buyer says, "Great, the ships leaving New Jersey next week. Here's support all this stuff, and you'll say, "Wait a second. I got to get it to New Jersey, instead of Savannah and Charleston, that's very different from a cost perspective and component. But because I made some assumptions during the sales process, that's now come to be a problem later on. So just understand that responsibilities, it's not just about who's pulling the strings and doing what and right in the checks. It is also about, hey, where is these things happening? And how is that going to affect my negotiation on the front end as part of that. And I want you to get caught surprised when something like that happens, right? Just know that, that's part of it. All right. Let's talk about Free On Board. FOB. Everybody loves FOB. People ask me, what do you think the 2 most common Incoterms used are? I'd say probably FOB and then a tie between Ex Works and FCI. That's a lot of stuff we see with FOB on it. In this version in 2020 and even the 2010 version, FOB is really a waterway term. There are previous versions that are used where air is -- there's an FOB Air version. But on this version, it's just meant for ocean and inland waterway moves. So the seller is responsible in FOB to delivery to and onboard the vessel, including export customs. The buyer is responsible for main carriage costs and risks onboard the vessel and everything after that. The risk transfers when it's considered onboard the vessel. Some versions of Incoterms say, when it crosses the ship's rail, and literally in those versions, that's what it means. When the crane lifts it, and it crosses the ships rail, that's when those responsibilities are happening. So why is FOB more commonly used than others? I'm not real sure, my cheap theory on this is FOB is probably the Incoterm that comes closest to a 50-50 split. Seller says, I got the first half, you get the second half. We'll call it a day. We'll keep doing business and everything is going to be great. That's probably one reason. There certainly might be other reasons as well. But it's a very frequently used term where the seller, you get it to the ship, you get it on the ship, you get customs taken care of. The buyers got the rest and the risk transfers when it's considered onboard the vessel. Our final 2 terms we're talking about today are CFR, cost and freight and then we'll end with CIF in just a moment. So under CFR, cost and freight, the seller is responsible for the pre-carriage. You got to get into the boat, the export customs, you got to file the declaration and you got to get it to the port of destination, right? So pre-carriage, whether that's getting it to a port or handling facility, warehouse, whatever that is, ultimately, you're responsible for getting it to the port of destination. The buyer is responsible for unloading at that port of destination and everything after that. The risk, again, transfers when it's onboard the vessel. So getting it to the port of destination, wherever that destination is, right, you got to name that, if it's leaving Savannah and it's going to Santos, okay, Port of Santos, that would be your destination port. Buyer unloads it at the port and gets it on to that point, your risk transfers on board the vessel. Important to note, just like CPT as part of your 7 multi models, the risk actually transfers at an earlier point than the carriage and the cost. Same example applies that we talked about earlier. You got one party that wants to leverage more influence over the transportation of the shipment, while eliminating their risk earlier, this is an Incoterm that can help apply to that scenario. But the difference between CPT and CFR is a little bit more -- is a little less, right? The risk is transferring basically at the port when it gets on board the vessel and your buyer is assuming responsibility at the port of destination for those other obligations, not just the risk. So that's a bit of a difference between CFR and CPT. Our final term today, CIF, cost insurance and freight, same physical scenario we just talked about with CFR. Buyers got to get carriage to the port of destination. I'm sorry, seller to the point of destination. Buyer is responsible for unloading at that destination and everything after. The risk transfers on board the vessel at the port of origin at that point. But this is the second insurance term we have here. So cost insurance and freight. So this is a waterway version that includes insurance as a component. Okay. So we talked about the insurance under CIP earlier. Same similar point supply with one difference. Let's talk about those. What does insurance mean for CIF? Currency of the contract. That's a similar point, has to be in the currency of the sales contract, Doller, Yen, Euro, whatever. That's got to be in that. Again, 110% of the value of the goods, it needs to cover. This is the difference. Whereas CIP was Clause A, CIF is Clause C. So Clause A was the most extensive, Clause C is about middle of the road extensive. It's the middle version of the level of coverage. A little bit less because these are generally dedicated to ocean cargo, right? And ocean cargo tends to be a little less urgent and valuable than some airfreight. That's not an all-inclusive statement. So just understand that. So Clause C on the Institute Cargo Clauses is a little bit less than Clause A. And then if the buyer is unhappy with the level of coverage, they can certainly bump that up to Clause A, but then they would be on the hook for doing that. So just a quick recap. Currency of the contract, 110% of the value of the goods, Clause C instead of Clause A for the Institute Cargo Clauses as to the leverage. If the buyer is not happy with Clause C, they can purchase a policy and they will be responsible basically for the difference. Although you're not precluded from -- if the buyer says, "Hey, we don't want that, and you say as an active goodwill for this relationship, we'll go ahead and do Clause A. That's okay. No problem with that. But if you want to maintain the letter of that Incoterm rule, all you'd be responsible for as a seller is Clause C on the Institute of Cargo Clauses. So that sums up our Unit 2. We've talked about the Incoterm rules and the points where carriage risk and costs are transferred from the seller to the buyer. We also talked about the cost components, and we've helped define those rules. I hope we've done that today in a satisfactory element. And I think now we'll go ahead and bring Chris into the conversation, if you don't mind joining us. And we'll start to go through some of the Q&A questions that we have today.

Absolutely. Yes, we're doing a few questions, which is great. Thank you for everyone for submitting these questions. To kick things off, Lyle, just to recap. Are Incoterms determining the ownership of goods? Or should that be clarified in the documents otherwise as well?

That's a great clarification point. I'm super happy you asked that. It needs to be clarified in the documents itself explicitly. Now as I said before, those clarifications and documents may often reference an Incoterm, but the Incoterm rule itself doesn't say anything about who owns the goods where or when. That needs to be a clarification made in your transaction between the parties involved, just so that everybody is on the same page, right? Yes. Great.

All right. Perfect. Next, if you name a place of delivery, does that mean that is where the contract ends?

Not necessarily. That's just for the movement of the goods itself. The sales contract, that needs to define in detail the specifics of that transaction and where contractual obligations will cease for whatever parties involved. As long as everybody is on the same page about what those documents say, then there you go. So the Incoterm itself doesn't talk about where contractual obligations will cease for that. It is simply -- remember the 3 things it covers. Transportation, who's arranging it, and where is it going. Risk, who's on the hook if something goes haywire, hopefully not. And then the last thing is cost, who pays for those things, who pays for the other 2 when they have it.

Great. Next, I know you just touched on this a few minutes ago, Lyle, but this question about DPU versus DAP and what exactly DPU covers [indiscernible] DAP doesn't cover?

Yes. DAP doesn't cover -- the main difference between those 2 really is around the unloading and the customs formalities there. So buyer -- it's not customers formalities. It's really the unloading. So you can name the destination between those 2. DAP and DPU are very similar. The only -- the main difference between the 2 is DPU, the seller is going to be the responsible for the unloading, which is a little unusual. But like you gave the example of the autonomous car and the breakable stuff, if you're qualified as a seller and really that needs to be a part of the transaction, you know your goods, they're sensitive, you know how to handle them, the DPU is a great option that you can still sort of assume the unloading responsibility. But for common, like palletized freight and stuff, DPU probably wouldn't be a good option, DAP would be just fine.

All right. Next. If a contract states simply FCA origin or DAP destination, but the purchase order quote and sales confirmation gives more details on actual locations, is that satisfactory?

I would say in function, probably. I'm thinking about it from an operational standpoint. Back in my years ago from when I was doing ops and moving freight, we would look at that stuff. So if -- and we often saw if you just had the 3-letter combination on documents, that was a very common occurrence. We would go to those other documents to see, okay, where is this occurring. That would help us on the functional side. My concern happens when -- between the buyer and the seller if a risk event happens, and you guys have to go back to determine, right? Where did this risk event happen? And let's talk about the specifics of, well, know it was happening here. So that means it's you, know it's you. So that's where it really -- I want you to be more covered. But from a functional operational standpoint, we can usually figure out what's going on and we can get it worked. Just want to make sure you've crossed your T's and dotted your I's from a liability standpoint. So it's always best to be more descriptive and less descriptive.

Perfect. Next, what are the most recommended or common Incoterms used for domestic transactions?

Well, that's a great question. These are great questions. I love it. We were -- we wondered at the beginning, we wouldn't have any questions, but home runs here. So we talk about -- these terms we talk about from an international perspective. But one thing that the ICC says is you can use these domestically as well. There's no problem with that. I know that there are sets of domestic terms that have been sort of floating around. I think the uniform commercial code, the UCC, that's been in practice. Those are updated much less and a little bit more unclear. The ICC recommends you can use these domestically. You just think about them from a buyer and a seller standpoint and just filling the gaps in between, right? It's probably a truck, taking it somewhere, maybe a rail, but you can apply the same rules to your domestic relationship that you can to your international relationship with a couple of minor adjustments for each rule. Any of those is usable on the domestic side. There isn't one that say recommended, but you're welcome to look at those and apply them to domestic transactions over international transactions as well. They're flexible.

All right. Perfect. Next, what risks are associated with allowing a vendor to file ISF on your behalf in the country of origin as a buyer?

Could you repeat the first part of the question again?

Yes. So what risks are associated will allow a vendor to file ISF on your behalf in a country of origin as a buyer?

Yes. So if you're -- ISF for those on the call that wonder what that acronym means, it means Importer Security Filing. And that whole regime came forward from -- in the years leading after September 11, 2001, where the United States said, "Hey, we really need to tighten import controls so that we know what's going to touch U.S. territory in soil or harbors long before it ever leaves so that we can say, yes, it's cool, bring it in or no, unloaded and don't take it into where we are. That's ISF. It means that we're responsible for telling the U.S. government what's coming in ahead of time before the ship sales. Now I would say the same risks apply to that apply on the actual custom side itself is who is filing this on your behalf? Do they have the facilities to do it? Do they have the understanding to do that correctly? You don't want a violation to happen on ISF that's going to come back to you here on the state side that's going to cause you a lot of issue. So the same overall concern is there, make sure you know who is doing it, their process. We have a lot of partners that have -- that are part of parent organizations that might be located in a different place, that really operate under the similar policies as the U.S. and all that's very similar, lessened risk there, I would say. But still, if you're doing -- and you're not a part of that organization, it is a division to division, understand what's going on there. Just start kicking over some stones until you've reached within your own organization at a level of compliance comfort that you can proceed with that. If not, look at taking that in-house and completing it yourself.

Right. Next, which handles -- which party handles customs clearance in FCA in their destination country?

In the destination country, the buyer would be doing that under FCA. And that comes -- so FCA, again, the seller really is responsible for loading it, export customs and getting it to probably the porter terminal. Everything after that, including what's happening at the origin side and the destination side is on behalf of the buyer. So you would be as FCA, a seller, doing the export customs, import customs would be the responsibility of the buyer on the destination side.

Right. Perfect. Next, as a seller, I handle free in insurance on behalf of my customer on FCA origin terms. I only want coverage on the cost of my product, not the sales price or invoice price, but I do build my customer back for freight and insurance. Is that acceptable?

I think so. That would be one for kind of an off-line conversation, probably with some other individuals as part of that. But this brings me back to a larger point around insurance. Just because there's 2 terms that handle insurance, CIP and CIF, doesn't mean you're precluded from adding insurance to every other term. In fact, we'd probably encourage -- you've heard me mentioned insurance several times. If you're selling on FCA and Ex Works, insurance should probably still be a part of that conversation. It's just not a by the letter requirement on the ICC side. So I would definitely encourage you to handle that one off-line by talking to your insurance and your salespeople to make sure that this practice is above board. Because now you're getting into maybe some accounting procedures, which I'm just not versed in.